Round Up Spring 2019

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Most fund groups are using the European MiFID Template (EMT). Target market data may also be obtained through third party research tools, or via investment platforms. Platform providers should obtain relevant target market information and present it to platform users.

The product governance rules are not explicit with regards to client segmentation, but it’s the identification of your target markets that needs to be sufficiently granular. Criteria worth considering for this segmentation exercise could be: • Client type (retail or professional). • Life stage (for example, accumulation, consolidation, planning for retirement, decumulation). • Knowledge and experience. • Ability to bear financial loss. • Risk tolerance. • Client objectives and needs (such as investment term, objective or protection/ growth of capital or future income need). Having defined the different segments that make up your client base, you need to define the services and solutions you will offer to each segment of clients. Just, make sure you have the systems and processes in place to deliver them. Your centralised investment proposition has to be aligned to the needs of your target clients. It’s important to have a clearly defined and repeatable process to perform this task. For this reason, we recommend that, where possible, you establish an investment committee (or similar body). The role of an investment committee is to provide a defined framework for centrally overseeing your firm’s investment process, including product and fund approval, and keeping those selections under review. An investment committee is also the ideal forum for overseeing your selection of insurance products. As with all processes, it’s vital that decisions are appropriately documented. Using the investment committee terms of reference and minuted decisions is one way to achieve this. Clearly, you still need to demonstrate suitability on an individual case basis, but a product governance structure needs to sit above your advice or investment management processes to support your firm’s investment choices as a whole.

What are the responsibilities of distributors?

What steps can you take to meet your product governance obligations? Client segmentation is an effective way of defining your target markets. You may have undertaken segmentation exercises in the past, for example to identify appropriate service levels for segments of your client bank, or to examine revenue generation trends. Segmentation for the identification of target markets is about establishing the types of clients you have and what services and products are, and are not, suitable for them. It’s a key part of your product governance obligations, but perhaps more importantly, it can help you to offer targeted services and solutions, which in turn, should benefit both your clients and business. • Distributors must ensure that staff involved in the distribution of the relevant products have the appropriate knowledge and competence to understand the nature and risks of each products. This is nothing new and should not present a challenge. Existing training and competence requirements and internal standards and testing for relevant non-advising staff should cover this comfortably as long as documentation is thorough and kept up to date. • Distributors must assess the needs of their clients, and the compatibility of each product. Taking in to account the target market information identified by the product manufacturer.

Jon Roberts Policy consultant threesixty services

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